Opinion: Residual Value Awards

For many consumers, a new car’s future trade-in value or residual value at the end of a lease is an important factor in their purchasing or leasing decision. A new car with a higher predicted trade-in value at the end of a financing term can mean lower monthly payments and a higher resale or trade-in value; in the case of leasing, a higher residual value at the end of a lease will mean lower monthly payments during the leasing period, all else being equal. Because of this, new car buyers often look to annual residual value awards (also called retained value awards) to help them choose a vehicle that’s the best value for their money.

In Canada, two publications publish annual residual value awards: the Canadian Black Book (CBB) publishes its annual Best Retained Value Awards, a list of vehicles with the highest retained values after four years; and Automotive Lease Guide Canada, which selects annual Canadian Residual Value Awards. CBB’s most recent 2012 Best Retained Value Awards list includes the top three finishers in 17 different vehicle categories for vehicles from model year 2008. Out of the 17 winners, 10 were Japanese brands, 4 were European brands and 3 were domestic brands (one of which was the Dodge Sprinter, actually a Mercedes).

Automotive Lease Guide Canada (ALG) also publishes an annual Canadian Residual Value Awards list, but cites new vehicles that are predicted to have the highest residual values after three years (luxury vehicles) and four years (mainstream vehicles). ALG Canada’s most recent 2012 Residual Value Awards included winners in 19 vehicle categories. Out of those 19 winners, 14 were Japanese brands, 5 were European brands, and none were American.

The fact that Japanese-brand vehicles tend to dominate these awards reinforces the general perception that Japanese-brand vehicles offer better value for money and better quality. But is this really true? Both CBB and ALG Canada determine their award winners using a formula that involves comparing vehicles’ original MSRPs (manufacturer’s suggested retail prices) with the predicted or actual values after a period of three or four years. The problem with this methodology is that many new vehicles, particularly domestic ones, often sell for less than their MSRP due to limited-time rebates and price discounts.

As an example, the Honda Odyssey was awarded first place in the minivan category in CBB’s 2012 Best Retained Value awards and ALG Canada’s 2012 Residual Value awards, while the Dodge Grand Caravan, Canada’s most popular minivan and Canada’s third-best-selling vehicle overall, was not on the short list.